QUESTION:
I have owned a motorhome that I purchased for rental purposes since 2001.
Last October I was informed by the ccra they were going back to 2002-03-04
and auditing my taxes. End result I sent them the below reply and the cca
for those years was denied, not only this but I had traded the unit in for
50,000, and in their answer I cannot even claim that.
Friday I recieved my bill from our government friends. Every thing that I
have read about this issue points to the ability to use cca as a loss.below
is my reply. My question is do I have a leg to stand on to fight this or
should I just make the best of it and move on.
Dear P XXXXXXXXX:
Re your letter dated November 25, 2005 regarding my 2002, 03, and 04 tax
returns. Please find enclosed;
1) Copies of the T2124 as requested.
2) The receipts and vouchers to support the Business Use of Home Expenses
for said years.
3) With regards to this item, a floor plan of my home is provided also its
description, a 2 story, 3 bedrooms with livingroom, diningroom, main floor
familyroom, the home has a double garage, 3-1/2 bathrooms, and a finished
basement (7 room house). The areas of the home used in carrying out the
rental business are as follows, the desk in the livingroom, for general
books and documents, cheques etc, the desk with computer located in the
basement to do the spreadsheets, and the 2nd bedroom where the records are
stored as well the comforter and pillows supplied with the motorhome but not
sent out for rentals, as are the hub caps which are stored in the garage.
These items are stored here to keep them in “as new” condition as they add
to the resale value of the motorhome.
4) All bills and record keeping are done from the home, insurance, licence,
GST, etc.
5) As other items please find attached receipts to support “other” expenses.
In addition to these requests, I am at odds to your proposal to disallow the
CCA for these years. It is/was my understanding the Motorhome was purchased
for the purpose of rental income, and is a piece of rental equipment like a
rototiller or tractor rented from a tool rental company, and not bricks and
mortar like a rental home. The motorhome is “brokered” to XXXXXXXX XXXX
Motorhomes where through our agreement, XXXXXXXX rents the motorhome out
for a percentage of the rental fee. XXXXXXXXX does not lease this unit from
me for “rental use” they market the unit, they maintain the unit, and
collect the rental income which they remit to me along with my share of the
GST on a monthly basis. The unit is kept on site at XXXXXXXXXX Motorhomes
and is available for rental year round. XXXXXXXXXX also sells Motorhomes
Lastly, owner use. I was under the impression I could use the motorhome for
2 weeks per year with no impact. Use in 2002, was 5 days, 2003 was 6 days
including repairs/deep cleaning carried out because the previous renters
drove into a sign and breached the roof seal, and use in 2004 was 1 week in
May and 5 days in August. Availability for rental is key, and personal use
during the season is only when the unit is not rented out.
One final point I would like to add is the unit in question was traded in on
August 6, 2005 with a value of $ 50,000, this would remove $ 18,000 from
the UCC numbers in 2005 and reduce the CCA available on a newly purchased
unit.
I hope and trust that the information provided will bring about a quick and
satisfactory result.
Regards
XXXXXXX XXXXXX
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david ingram replies:
I am afraid you are out of luck on all three counts. A records office in the
home is not a deduction unless it is your principal place of business. The
rental of a motorhome as described with another company doing the renting,
maintenance and storage can NOT be considered a full time business. AND the
office MUST be a private separate room not used for any other purpose. For
instance, I am answering this at a computer in the middle of my living room
(there are actually 4 computers in the living room and I meet at least 100
clients a year here) but since it is a dual use room, I do not and indeed
CAN NOT deduct anything for the space even though I do 90% of my work here.
Likewise, the entranceway to the house which has a photocopier and space to
assemble and mail out tax returns; because it is a dual use room (everyone
entering the house goes through it) that space is not deductible either.
Next, One can NOT use depreciation to create a loss with rental property.
This has been true since 1972 and applies to rental houses, rental boats,
rental Motorhomes, and even rental jet engines. There was specific
legislation passed for a few years to allow depreciation for special built
MURB'S where depreciation was allowed from Oct 1974 to 1986 or so with a
break in between and later in 1985 and 1986, there was special legislation
which allowed depreciation for special built rental boats (to support the
boat building industry) but there has never been an exemption for
Motorhomes.
Last but not least, any personal use of the motorhome must have a personal
benefit attributed to you. This can be attributed by mileage or time or a
combination of both.
It seems to me that the motorhome dealer you have mentioned has not given
you good advice. Your letter to the CRA naming them will likely create
audits of the list of motorhome owners that they are renting units for. (I
know - bad English).
I have acted as a tax consultant for two large motorhome rental operations
and can assure you that we have not suggested that depreciation can be
carried past zero for any individual owner.
The exception is for the actual business of renting tools, renting cars,
renting hotel or motel rooms or renting Motorhomes where that is obviously
the business of the operation. Mitchell Motorhomes could deduct
depreciation on their own rental Motorhomes.
On the other hand, even though a 10 unit motel owner can deduct depreciation
(CCA) past zero on his or her 10 units, the owner of a 100 suite apartment
building rented by the month or year can NOT deduct CCA to create a loss.
This is, of course, NOT true in the USA.
------------------------------------------
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